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New Shenzhen labour regulations offer hope for the future

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13 August, 2008

Draft regulations currently before the Shenzhen municipal legislature represent an important development in China’s labour law which could lay the groundwork for improved labour relations and give trade unions the opportunity to effectively represent workers in collective bargaining with management.

The Draft Regulations on the Growth and Development of Harmonious Labour Relations in the Shenzhen Special Economic Zone clearly reflects the Shenzhen government’s concern over the widespread and serious labour rights violations in the city, as well as its determination to improve labour relations. A research report commissioned by the municipal government last year found that that labour disputes in the city, most commonly resulting from management’s failure to pay wage arrears, overtime, severance pay or social security contributions, were becoming increasingly intense and well-organized. The government recognized that such disputes would have to be addressed if economic and social stability in the special economic zone was to be maintained. The Draft was the first major piece of legislation issued in the city since the reform-minded Liu Yupu took over as Shenzhen Party chief in January 2008. And the drafting process demonstrated the government’s desire to canvass opinion as widely as possible. Before issuing the Draft, the municipal government studied a wide range of labour laws in Singapore, Hong Kong, the United States and Europe, and engaged in extensive consultations with management and employee representatives. Finally, the Draft was submitted for public consultation on 2 June 2008. It was published in all major local newspapers and received considerable attention not just in Shenzhen but across the country.

China Labour Bulletin (CLB) is encouraged that the Shenzhen government has reacted in such a pragmatic and positive manner to the city’s labour problems. Indeed CLB believes the Draft contains important new provisions that have the potential to improve labour relations and empower trade unions to effectively negotiate with management. There follows a brief analysis of the Draft, focusing on some of its key provisions.

Article 10 of the Draft states that a “mechanism to regulate labour relations” must be established within enterprises and proposes that “enterprises establish a system of dialogue with workers and hold face-to-face meetings to listen to workers' opinions, proposals and other reasonable demands.” This is a significant step forward because it provides the foundation for worker participation in the management of enterprises and will provide enterprise trade unions with an opportunity, once they have won the support of workers, to represent them and present their views and demands to management. It will also complement the collective consultation system currently promoted by the All China Federation of Trade Unions (ACFTU). Once management and workers have completed a round of collective consultations and signed a collective contract, a dialogue system can both help implement the collective contract and, more importantly, bring to light and facilitate the timely resolution of labour conflicts within enterprises. Importantly, Article 24 states that the collective consultation process must encompass the “prevention and handling of labour disputes.” This is the first time such an explicit provision has been included in Chinese labour legislation. No such provision can be found in the Labour Law, the Labour Contract Law or the Regulations on Collective Contracts.

The Draft contains an entire chapter on collective consultation, which goes some way to broadening the scope and efficacy of the system within enterprises. Article 20, for example, addresses the hitherto intractable problem of excessive overtime, which has led to numerous labour disputes in the past. It stipulates: “If production and business operations make it necessary to prolong working hours, the employer may decide or agree to do so by means of collective consultation or a collective contract in accordance with the law, provided that the workers give their free consent and their health is ensured.” Previously, Article 41 of the Labour Law had stipulated that employers could prolong working hours if production or businesses operations required it, provided that they consulted with the enterprise's trade union and workers. Article 41 of the Labour Law makes it clear that such a prolongation of working hours is both temporary and “non-institutionalized in nature” (fei zhiduhua de xingzhi). The Draft proposes an institutionalized system of collective consultation in which labour and management would jointly decide whether or not to prolong working hours and if so by how much.

Article 44 proposes the establishment of a “comprehensive mediation” (da tiaojie) mechanism to resolve labour disputes. The idea of comprehensive mediation goes beyond the scope of provisions in the Labour Law and the Law on Labour Dispute Mediation and Arbitration enacted on 1 May 2008. It prioritizes mediation rather than arbitration in dispute resolution and aims to effectively integrate the three branches of the mediation system, popular mediation (carried out by people’s mediation committees), administrative mediation (by government officials and agencies) and judicial mediation (by the local courts) into one.

In addition, Article 45 calls for the establishment of a “special mediation” system for settling major labour disputes. It states that in the event of a major labour dispute, members of the municipal or district labour relations committee may organize mediation proceedings. This expands on China’s existing mediation system (outlined in the Guiding Opinion on the Establishment of a Sound Tripartite Labour Relations Coordination Mechanism, issued jointly on 13 August 2002 by the Ministry of Labour and Social Security, the ACFTU and the China Enterprise Confederation/China Enterprise Directors Association) in which mediation committees can only “investigate” major disputes and “make recommendations” for their resolution. The proposed special mediation system establishes a legal and institutional foundation for the direct involvement of government and trade unions in dispute resolution. However, it will also add to the workload of the government’s already overburdened labour departments. As such, greater emphasis should be placed on resolving disputes within enterprises as soon as they arise through collective bargaining and dialogue, thereby negating the need for government intervention.

As already noted by many observers, Article 47 of the Draft states that when a labour dispute develops into a strike (referred to in the Draft as “work stoppage” (tinggong) or “slowdown” (daigong)), the enterprise trade union shall represent the workers in “negotiations” (tanpan) with management, present the opinions and demands of workers and put forward solutions. The use of the term “negotiations” is noticeably more forceful than the term “consultations” used in Article 27 of the Trade Union Law (amended in 2001). That provision stated: “In case of a work-stoppage or slow-down in an enterprise or institution, the trade union shall, on behalf of the workers and staff members, hold consultations with the enterprise or institution or the parties concerned.”

Article 47 also introduces for the first time the concept of “return-to-work orders” in labour disputes that escalate into strikes or stoppages at enterprises that provide essential public services, or where a strike can potentially endanger public safety or cause serious damage to the economy or the public interest. This article, modelled on the cooling-off period common in the USA and Hong Kong, empowers the city or district government to order the enterprise or employees to halt the strike and return to work. Such an order would require employers and employees to refrain from taking any action that exacerbates the labour dispute for a period of 30 days after a cooling-off order has been issued. During the cooling-off period, labour bureaus, trade unions and trade associations must conduct negotiation, mediation and arbitration proceedings and work towards a resolution of the dispute.

The Draft borrows many ideas from the international labour movement and business community. For example, it highlights the concept of “decent work” promoted by the International Labour Organization. Article 11 states: “Enterprises shall protect the human dignity of their workers and guarantee decent work.” This is almost certainly the first time that the notion of “protecting workers’ human dignity” has been invoked in Chinese law, and signifies that workers not only have “legal rights and interests” but also human rights. In addition, Article 12, for the first time, specifies that enterprises should be encouraged to practice corporate and social responsibility, reflecting the increasing influence of the CSR movement in China over the last decade.

In another innovative development, Article 35 proposes the establishment of a “labour relations credit rating system,” which stipulates that within seven working days of an employer committing a serious violation of labour laws and regulations, the local labour bureau must enter that information into a credit rating database. Once registered in the database, enterprises will become ineligible for government investment or procurement, they will not be eligible for government preferential policies or if they currently benefit from such policies, those policies will be discontinued. This provision will not only serve as an effective warning to employers to observe China's labour laws and regulations but could also improve the government's image and credibility in the eyes of workers.

In addition to introducing new ideas, the Draft also refines and modifies some of the fundamental provisions of the Labour Contract Law, making them more applicable to labour relations at the enterprise level. Crucially, the Draft contains a specific provision on the use of labour supply agencies. Both the Labour Contract Law and its Implementing Regulations do not specify in any detail the job positions which can be filled by labour supply agencies. But Article 19 of the Draft stipulates that: temporary job positions lasting less than six months; job positions that have been certified by the municipal labour department as being non-core job positions; substitute positions for current employees who are on leave; and public welfare positions supplied by the government can all utilize labour supply services.

The Draft Regulations on the Growth and Development of Harmonious Labour Relations in the Shenzhen Special Economic Zone is a well thought-out piece of legislation that, if implemented, can have a major and generally positive effect on labour relations in Shenzhen. However, the Draft fails to give sufficient emphasis to the key role of collective bargaining. The main provisions of the chapter on collective contracts merely elaborate the relevant clauses of the Labour Contract Law, and too much responsibility is given to government agencies. The proposed labour relations credit rating system, for example, is supposed to be run by already overburdened government officials but no one is better qualified to judge employers’ credit rating than the employees and their union representatives. Also, because strike action is so common in Shenzhen, the Draft should limit the government’s use of “return-to-work orders.” In order to prevent the abuse of such orders and a consequent exacerbation of labour disputes, the authority to issue them should be limited to city-level government departments only, and not district government departments as currently stipulated.

If implemented, the new regulations will give trade unions in Shenzhen a tremendous opportunity to assume a new more dynamic, pro-active and representative role. And encouragingly, the Shenzhen Federation of Trade Unions has, over the last year, become increasingly willing to stand up for workers’ rights and actively promote collective bargaining in the city. Shenzhen is often seen as a test bed for economic reform in China. If the government, unions and workers can take full advantage of the opportunities presented in the Draft Regulations on the Growth and Development of Harmonious Labour Relations in the Shenzhen Special Economic Zone, there will indeed be hope for the future.